These two automakers can benefit if China imposes tariffs on US imports

China has threatened to impose an additional 25 percent retaliatory tariff on U.S.-produced automobiles, and that will benefit two companies even as the others struggle, Nomura said in a note on Thursday.

The investment bank estimated that if the tariff is imposed, current U.S. auto exports to China would fall by 50 percent or more as they couldn’t be sold at competitive prices.

“In this event, we believe that that the automakers would work to address the issue over the next several years, for instance by expanding local production in China or by exporting to China from factories outside of the U.S.,” Nomura said. “We believe it would likely take two to three years for automakers to start putting such measures in place and five to six years before such measures are fully implemented.”

It noted that around three-quarters of vehicles exported from the U.S. are luxury models, which carry high prices in China; China imported 1.065 million automobiles from around the world last year, and around 75 percent were luxury models, such as those from Mercedes-Benz, BMW, Audi and Porsche, the note said, citing MarkLines data.

“This could provide an opportunity for luxury automakers outside of the U.S. to increase their shares of the luxury import vehicles market in China,” it said.

The “good contenders”

Nomura said the “good contenders” are Toyota Motor, which exported 108,000 Lexus vehicles from Japan to China last year, and India-based Tata Motors, which sent 64,000 Jaguar/Land Rover vehicles from the U.K. to China last year.

There might be another potential beneficiary, Nomura said, pointing to BMW and its Chinese partner.

“If BMW opts to shift production of luxury SUVs to China, we would expect this to provide further business opportunities for Brilliance China, BMW’s business partner in China,” it said.

Many of the autos exported from the U.S. to China are high-end SUVs produced in the U.S. by German automakers, such as BMW and Daimler, the note said.

By export quantity, Ford, Fiat Chrysler and Tesla are next down the list, Nomura noted.

But it added, that GM and the Japanese and South Korean automakers export fewer than 5,000 vehicles to China each year, meaning the tariffs would have little impact on their finished products.

“We view it as ironic that a trade war between the U.S. and China would have the biggest negative impact on the German automakers,” it said.

Separately, Nomura rates shares of Tata Motors at Buy, with a 526 rupee target, saying the valuation is attractive.